good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for wednesday january second two thousand and thirteen happy new year it's two thousand bird thing we're back let's reflect on some of the economic predictions that never came to be last year so our thinking can progress pragmatic capitalist colon roche is here to explain why some folks were wrong about inflation as an example and what the fed's overly optimistic past predictions mean for its future guidance and we have heard about it and in the night. the senate strikes a deal on the fiscal cliff but not before we the fish we fall off the cliff just

two hundred so just. your charger meaning it is now the house where. you are dear smart viewers i'm sure already know about the deal congress reached then that it leaves lawmakers wrangling again in a couple months over the debt ceiling and the spending cuts that they delayed but when it comes to the reported six hundred billion dollars over ten years in new revenue this deal is said to raise never mind the new deficit that creates what does that kind of money by any way we have a reality check plus why is the government involved in keeping the price of milk was no part of the fiscal cliff deal involved of burning what some have dubbed a dairy cliff we'll discuss and wall wrong cliffs we have five phrases we'd like to retire this year that's them loose change let's get to today's capital account.

so the fiscal cliff has been averted kind of by a deal that pushes more wrangling into this by a few months so i'll save you the play by play of the twenty four hour cable network news that we are hearing and will continue to hear for at least the next few months let's move on to something actually interesting though for the most part it is a new year time to reflect on how we can be better in two thousand and thirteen when it comes to the way we think about the economy money capitalism whew we just take an assessment of where we are heading into this new year what we maybe got wrong last year so colin rusch is here to help us with that he's founder of or camp a natural group and author of a blog you may know pragmatic capitalist or capitalism excuse me so first thank you

so much for being on the shelf we're happy to have you here. nothing new here so let's just a little bit touch on the fiscal cliff and then we will move right past it we didn't go off it exactly still more deal making to come in a few months on the debt ceiling and on those spending cuts that they pushed off in terms of the sequester that was supposed to go through we do have some tax hikes we do have some permanent bush tax cuts i don't know what's your take away on this deal. are. basically. basically what really been the problem here is the whole. people. you. know the. law.

we're going to saw in the rain maybe a little more. if it was your money i think. the problem among. your lot. all. right. a lot of. what the lawmakers what the deal did manage to do is help lawmakers avert headlines today of markets plunge under their points on lack of fiscal cliff deal but as you said the actual meeting is really nothing to write home about so let's talk about something more interesting any time these kind of discussions come about about the fiscal cliff or or whatever it may be even we're talking about prescription for the economy we hear plenty of ideas about what it takes to stimulate the economy or help the economy

improve whether it's that the government needs to spend to make up for what the consumer isn't spending or whether it's the government know we need to cut spending to shore up the budget and get rid of some of these deficits or the magnitude of them or they need tax cuts to stimulate the economy now all of these are driven by economics theory by economists and their models but you argue that there's kind of a core problem which is that you can't really separate policy prescriptions from ideology of whoever that economist is or that school of thought is that giving the policy prescriptions so how so like explain that and also you know where is reality fit in. those who know the one and i think the part of the. economic that we're the big we have in the you know that you have. made up of really get to be cool with the fresh you are cool they call it in the fall was cool and it's basically the guys that are in chicago the first one guy when he bought the

saltwater guys were there long guys all the. numbers and the two schools really dominate the entire field of economics not even their paramount their degree . outside of the higher economic question. and i think that the problem with the school fire is that. so much of their discussion is around. around the political ideology for the most part the chicago guys tend to be a little bit smaller energy more than they were both on monetary policy and we saw so our guys tend to be more you know the name you know the similarity between the two schools is that they all start with sort of the policy i mean that you know the marchers always.

focus on. the treasury to send more money you implement some sort of. help me pond work do we're trying to think it was that both would make its policy agenda if you will the real world guard was the real work so when i started to do was a lot of my work is. a lot of the what we're trying to do with. what we call and now. we're starting from. we're starting from a reform to. not of the monetary system and really getting into the muck and bull out of. our system works. our genesis was a look this is not a world work with a monetary system was designed this is sort of the core institutional role that

needs to comply we're not really. ok we think that monetary policy but the school policy without were dispersed and ok you know the banking system is of course has a business model for our business that works. so if more of those programs are care not your focus on the descriptive rather than what we hear were so many schools of thought which are both descriptive but also prescriptive which are saying you can't really then separate the ideology from that so then tell us your reality what are people missing about the monetary system and their origin every idea that doesn't necessarily gel with what's going on yes i think the biggest thing that actually for more of the current economic model is the banking system you have is that your focus all your. heart they really don't. think it's in their economic model for the most part so far.

broader work with the focus of the most long banking system because the banking the sort i mean credit is the lifeblood of the ahmed. is the primary form of money the money just borrowed by its beauty supply broad policy burn or god. five day call that may create money by creating law and they do this who are are without any government. to have any more of our mom. and the law with a lot of modern economics that you just have no with that all this core. from the bottom. side on this in the human body. in the grass. grows more or. understand how to search for. the new the search because it's the road our also exactions.

performing our show our shore and when that circulatory system isn't performing well the fat comes then and is i don't know what you would compare the fed to the doctor that then supports the circulatory system gets the blood pumping or so we're led to believe so you know what. i could hear you that but i am but i'm sure it's very very very funny i'll let you fully respond because what then is the role of something like federal federal reserve stimulus or cueing what does that actually do because the idea is that that gets the money to the banking system which in theory should then lend the money out and get it to main street for businesses or individuals or or what not but what do you think then really is going on with killing for the weird sort of end of the farmer. actually. for a while. actually go back to the brady. law

. one. day. and they really are all. about. the one that we all. live by. the day. all work. that. the cardinal law. who. may be involved in the last five years is the fact that it's. moved by marketing very brave to actually actually. conduct the.

we love the moment but since it's not injected into the action we have any impact on policy. i think. that's why you. you need a. monitor. we're permanent he we. are. we. are not. alone in. who were who are you making. them who are. for or against. our current. or what's more stark or.

marginal. and that's what you need is. you know the sort of. growth which are. more negative in part on the. policy area there and when we get back we're going to go to break but i want to talk more about the ways in which the monetary system is misunderstood as perhaps lend itself to wrong predictions that we've seen in the past year or so some more color and a minute also still ahead how many days worth of us spending kind of projecting new tax revenue from the fiscal cliff deal paid for take a guess do not google it will tell you after the break and put the fiscal cliff deal in context class more with our gas calling for a chill first or closing market numbers.

free. free. free. free. free. free. free. media. c.d.o. guy. tom you. look. wealthy british style. right.

markets. find out what's really happening to the global economy with mike's cars or for a no holds barred look at the global financial headlines kaiser reports.

welcome back so we're talking about monetary mechanics and this issue of monetary mechanics brings me to economic predictions that never came to be with the fed's unprecedented actions starting back in two thousand and eight and since we've had many a projection for massive inflation one that our guest was writing about was a gentleman named robert murphy who made a bet in two thousand and nine is the story goes that headline inflation would hit ten percent by january of two thousand and thirteen that is now it hasn't done so here's just a look at the consumer price index for all urban consumers just for a little context so you can see that it's not anywhere near that mark and we don't need to single this guy out ok plenty of people thought this would happen i'm sure there were many of bets like this so what did these folks miss and what we're talking about missing predictions the fed has missed the mark on plenty of its

predictions ok here are the fed's forecasts of growth versus actual grow ok which would be more funny and less concerning to us if it weren't for the recent guidance that the fed issued which included for example that the committee currently anticipates that it's exceptionally low range for the federal funds rate will be appropriate for at least as long as inflation is between one or between one and two years ahead is projected to be no more than a half a percentage point above the committee's two percent longer run goals so i don't know what could be the impact of the fact that the fed is in actor with its predictions it is basing its guidance on the let's ask our guest colin ross because we're talking all about the monetary system and how it really works in the role of bank so cool and with that first issue of inflation predictions predictions that we would have massive inflation by now what if people kind a miss. well i was part of those bungalow responsible for your understanding really the core of the modern. understanding modern banking and well are you going

back. it was going to be very much. the problem are we think. if you go back and look at. that something like. that out of the banking system in our private sector it is the core misunderstanding of the way that the intervention not more. important quantitative even what they're really doing is they're swapping for every bond. with p.p.p. obviously understanding that when ben they won't they don't do so they don't do surveys on their reserve addition they do it based on our mission and if you look at what we do you really respond to the bond or reserve actually doesn't change the contribution of the bank at all so they're

a great more sir rather make more in both of them a loan and thirty seconds that's all i'm sorry i got thirty seconds before we go i just really quickly want to ask you if we should be concerned about ben bernanke and his colleagues at the fed wrong predictions. yeah well you know the problem is that you know a lot of these guys. have very little actual thinking background so now you've got a guy running right now the more bank in the world. bank or more. the one who got very little real world. who really hearing them work in order to promote the world. was great with ability to acclimate. that is huge and i think that the record sort of the first. what are the very work . in the future of the for both you and i think the broader.

issue brown why that policy have become to be backdrop. so doesn't bode well for the future but we're happy that you are to explain what people should know looking for i appreciate it congress founder of our campaign anshul group and he is a pragmatic capitalist. all right it's time for a reality check i think it's fair to say more political theater lies ahead when it comes to the fiscal cliff deal but let's just quickly touch on it ok when it comes to the tax hikes that were passed by congress as part of this deal those are set to

raise six hundred billion dollars in new revenue over the next ten years that's according to the wall street journal but just to put into perspective what does six hundred billion dollars over ten years actually bob because it's important to know that right so let's put it in a little perspective one year's additional revenue from this six hundred billion dollars that's sixty billion could cover the u.s. as current expenses for how long oh a temporary five billion dollars that is less than six days that is five point seven days according to tim phillips of townhall dot com we've crunched the numbers or the additional revenue if you started saving it for about five years so half way through that ten year projection you could pay for the f. thirty five fighter plane program which will clock in it three hundred thirty one billion dollars according to forbes citing defense department in two thousand and twelve dollars so house way through you can get to that number of one plane program morning we have not adjusted these numbers for inflation and based on expectations

of inflation but hey these are estimates to begin with so let's just keep having some fun so at the end of ten years if you saved all of that money this six hundred billion dollars in additional revenue you're really good you saved it you didn't spend it you could pay for one year of defense spending after all that saving one year. at least as far as we can tell from projections that in two thousand and twenty two defense spending will be six hundred eighteen billion dollars that's under obama's budget estimated by the c b o and the office of budget management and after ten years saving all that dough it will oh it's pay what were the federal spending on the net interest on america's debt which is estimated to be seven hundred forty three billion dollars and twenty twenty two again this is according to cvo and o.m.b. based on obama's budget finally this six hundred billion dollars if you a save that all could pay less than one sixth of the four trillion dollar deficits the cvo says this deal is also likely to create because it makes most bush tax cuts

permanent so much for curbing our national debt just a quick reality check for you. all right let's wrap up at least change dimitry. let's we get so from cliff let's talk about one more because there was another clip that lawmakers worried about this week the dairy cliff. one provision of the measure passed by the senate avoids the so-called dairy cliff it extends portions of an expired farm bill through september so that will prevent milk price increases without the legislation mentioned this

yesterday milk prices were expected to double up to eight dollars. why is the government involved in subsidizing the price of milk milk is not even good for you we're the only mammals that drink our own milk this is not a good thing to be involved in not that the government should be involved in the prices of anything you mean we're the only mammals that drink other mammals milk yes that's what i meant yeah. it's ridiculous. we rail against subsidies for all the subsidies in the farm and to go back at least as far as before part of the great depression when the farm industry and agriculture was hit hard before the crash of twenty nine and this is a disaster and i'll tell you what they were very clear if the methane hot air balloon bubble because the reality is that these subsidies for milk i've seen reports of sixty percent ok of humans cannot digest milk are lactose intolerant we are not built to to so they're so we're subsidizing human farts plus plus cows

apparently fart like crazy i have seen reports that that there's a huge concern that could actually be methane could actually be contributed global warming so they're creating these for capturing devices that they put on the backs of cows and plug them in and then that methane gas goes into the sump somehow it's basically it's ready to go to work so when you said that i mean lobel warming when you know one thing and sandy is these cows you know the the proverbial butterfly and the cow in iowa or wherever these cows are being like california happy cows you're from foreign cows though not well i'll tell you when you're talking about the methane bubble that is one bubble you would really not want to be on the wrong side of when it pops especially there's a lot of the lighter standing and. below it all up ok let's move along from the fart jokes ok so milk may be saved but according to the web site dealing news here are products that will not be saved from price increases in two thousand and thirteen now this is a list of twelve i just gave you

a couple grocery food costs expected to rise remember we had a drought this really you know. fact of food prices another one copper prices rise which could impact the price of beer can drink wine or drink milk instead of college according to the college board advocacy and policy center tuitions will increase because i guess uncle sam can't subsidize in-state institutions as much and shipping u.p.s. that x. announced that consumers can expect board of five percent and shipping costs this year so milk is saved but these are not the copper calculation was based on the fact that now it can be speculative with like the j.p. morgan e.t.f. i don't we were particularly worried about any of these particularly we're going to if you're worried about the one that you're about to tell us about more and i want to talk about that i want to go to one of those say we are sure that it was saved milk right now i'm sure it was the mix of. how do you remember it and why i know i'm not going to memorize it and i was still in a different gear here so did

a long time to get from so i can refer to the fifth year ok ok you nailed it the first time around. two thousand and twelve we had so many phrases that we were over and over again. first the effects of the fiscal cliff so-called dairy cliff i don't want to use this phrase but kick the can down the road tax credits from from the stimulus in two thousand and nine there being too much austerity in the patriotic thing for them to do is to pay their fair share. so we have six phrases that we would really like to retire in two thousand and thirteen clips of any kind dairy cliff fiscal cliff patent cliff earnings class no more kicking the can down the road over here that one more time i'm going to. jump off a cliff yes jump off a cliff with a can of my hand so it can't be kicked stimulus and we need it we don't need it blah blah blah austerity oh gosh austerity austerity protest blah blah blah and

paying their fair share what is that even mean and this one of the wild card for me a green or arguing i don't think it's a liberty policy domestic policy is just a normal word in the dictionary and i it's become a great thing where that makes revolve want to vomit all over myself because you very very guys are going to be able to like we have a justice policy group tweak this policy so maybe it's a single word no it would be better bedwetting really doesn't have any policy tool in our world is the scots think. policymakers i only want there's nothing i don't want close on foreign policy no more policy i don't want policy i just want markets get some markets and here we are our prices are right our prices i'm going to go as i drive i thank you so much for watching be sure to come back tomorrow until then have a great night. technology

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